Daily Market Outlook for 1-Sep-2011

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A surprisingly strong bullish movement by STI happened yesterday. Such bullish movement could be due to the “catching up” effect after a public holiday on Tuesday. The day started with a small gap up but traders rushed to enter the market in anticipation of HSI’s strong movement. After lunch the bullishness was further enforced by strong bullish movement in the Europe side. STI managed to not only break 2800 resistance level, it zoomed up to test the recent high level of 2890. The US market strengthens again after stronger employment data being announced. Fear seems to have totally subsided and market participant’s mood has turned again. Traders were worried on whether yesterday’s rally is just a relief rally for further downside. Most also worried on how far can STI go now.              
              
STI closed as a long white candle yesterday which indicates the buoyant bullish movement that happened. The candle not only managed to break the gap resistance level and 2800 horizontal resistance, 20ma resistance level was also taken out yesterday. The buying sentiment is supported by more than average trading volume. This increased in volume confirmed the breakout and could indicate that Shortist might be rushing to close their short positions. Short term indicators continue to show bullish indications. RSI is now slightly higher than 50% level and Stochastic is seen to enter the overbought zone. Immediate resistance is now at the recent lower high of 2890 level. If 2890 level fails to resist, STI would have broken for a higher high formation. The next upcoming resistance level would be the gap resistance between 2942 – 2974.                
              
The banks had confirmed their bullish reversal formation yesterday as they managed to trade higher. Bullish divergence is seen for the banks as higher lows are being formed in the histogram. Confirmation will happen only when they are able to break their 20ma resistance. In order for banks to turn uptrend, they have to break their recent lower high formation. Most of the STI’s bullish movement were contributed by the offshore sector. Kepcorp and Sembcorp rebounded violently yesterday and closed near / exactly at 20ma resistance. Breaking of this 20ma resistance would mean the downtrend might have ended.                
              
The properties also performed strongly today. Kepland managed to confirm its bullish reversal signal and should be heading towards 20ma. Capitaland and F&N managed to stay above 20ma which could probably end its downtrend already. Citydev was the odd ball was the closing value was way below the pre-closing price. The commodities also contributed a large portion of STI’s gain yesterday. All of them managed to break 20ma without hesitation and its downtrend movement might have ended. Olam was the strongest of all as it broke its previous lower high due to buoyant earnings reported. The commodities will likely to have a little more upside before they will consider overbought.              
              
In conclusion, today’s strong movement is likely to be contributed by short covering as Shortist has to scramble to cut their losses short. Upside should still be expected if STI manages to break 2890 resistance level. A higher high might be formed at the gap resistance level of 2942 – 2974 levels. Market condition is starting to enter into overbought region in the indicators and retracement could be seen in the next few days if US market fails to continue its bullish movement. Overnight US’s closing is likely to ensure that this bullish movement would be sustainable today before a retracement could happen. Long traders might have regarded not to chase based on break out today. However, as the opportunity has been missed, chasing prices right now might not be the best strategy. Clear upside confirmation will be needed to gain confidence on the long side. Shortist might have been scrambling to cut their losses short as numerous cut loss points have been breached. Adding new short position at this dizzy level might not be wise as there are not clear signs of bearish movement currently.